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Technology Stocks : Phoenix Technologies (PTEC) -- Ignore unavailable to you. Want to Upgrade?

To: John B. Dillon who wrote (3255)	4/20/1999 7:06:00 AM
From: Mark Brophy	Read Replies (2) \| Respond to of 3624

Your assessment is the best summary. Post 3246 gives a good summary of the positive points and omitted the negative, but your post 3248 is more realistic and informative. The BIOS business is confusing at best, but it is clear that there has been a dramatic shift to the lower cost Award BIOS with Taiwan motherboards. (Sounds like it was very good that PTEC's bought Award) …. Jack feels that pricing pressures will force more business to Taiwan with Award BIOS. Eventually, with Merced shipping in quantities, we may see an increase in top line revenue for the BIOS business. It's not confusing at all. When a country is in trouble, the leader often sends it to war to distract the people from sex scandals or other problems at home. When a company is in trouble, they sometimes make an acquisition to focus the attention of the employees and shareholders to integrating the merged entities. The high end BIOS that was the heart of the company before the 1998 mergers constitutes about 50% of revenues and is declining rapidly. The rapid growth of the remainder of the company barely offsets the decline and the net result is stagnation. It sounded like Secure Agent and ROM Pilot are not profitable. Secure agent has the best chance of becoming profitable soon with biometric authentication devices. NEC is shipping Secure Agent. Jack feels that ROM pilot will eventually be successful. NEC is also the only announced customer for ROMPilot. NEC and Phoenix have a long and apparently close relationship. Jack Kay seems to have overoptimisticly extrapolated this to other customers and spent too much on R&D. I worked in the NEC BIOS group at Boxboro in 1988 when Phoenix was headquartered in Massachusetts. The biometric business was very successful, but the remainder of the operation in PCs and workstations was managed poorly. The appliance business was flat due to prepaid revenues received last quarter. PTEC still expects this business to grow 20% this year, but were not overly convincing. The setback is temporary. Pico will continue to grow at a healthy rate, although not with the hypergrowth of the SIP business. John Bar from Needham was very positive especially with the EPS growth. What EPS growth? It was flat with last year! I guess you guys are referring to operating earnings. Award and Sand diluted interest income too much and added charges to allow EPS growth. Jack could not commit to the stock buy back program continuing, but they had a Board of Directors meeting on Friday and I am sure they will make the announcement on Monday…. I am disappointed with no revenue growth and Jack was not ready to commit to top line growth at this time. As you stated in a previous post, this stock isn't worth owning without a buyback program. Given the lack of earnings growth, it's only worth 20x earnings ($0.57/share), which is 11 1/2. You can't count on any growth unless and until Merced has been released and is gaining market share. From 3246: The top 5 customers were Fujistu, HP, Intel, Sony and Unicore. (I was glad to see Intel as #3) These are in alfa order. Intel remains the biggest customer. When they announced their top five customers I was surprised that Compaq and IBM were not mentioned. I thought Compaq was shipping PTEC BIOS exclusively for their home computer division. It sounds like IBM and Compaq are still selling old models without a Phoenix BIOS. Fujitsu is in the top 5, which indicates that the SIP group has an important patron. LSI is not, so they're using the 1394 cores they purchased in the Symbios deal. From 3246: Jules, regarding your questions I thought Jack's answers were very well handled. The Y2K answer I agreed with wholeheartedly. There was no future in that arena. The Internet answer was GREAT. If he could only speak about customers it would have been perfect! Jack Kay has an obligation as an investor relations rep to speak diplomatically, but I'm not under any such restriction. Jules is asking Phoenix for contradictory initiatives. The company cannot simultaneously reduce R&D and promote or exaggerate the net angle by yelling, "dot com!" If anything, the company has prematurely (very few customers) pursued the net related security NEC projects I mentioned earlier. As Jack mentioned, the SIP for connectivity has been successful, and I go further and contend that it represents the major opportunity for growth in this company. Examine the history of the SIP processor companies (ARM and MIPS) and Rambus for the potential. And, note that the BASIC language went from a "toy" (the "B" in the BASIC acronym stands for "Beginners") to the most popular professional PC tool largely due to the reusable software VBX standard. Visual Basic is even used inside Phoenix, which is about as far away from "beginners" as you can possibly go! Reusable HDL code will find its way into similar unexpected uses in the future. The major criticisms Jack Kay deserves of his 4 year tenure are his lack of foresight prioritizing Intel motherboards over the feature-sparse Taiwanese competitors serviced by Award and his inability to invest the cash hoard. He spent $25m on Sand and $10m mollifying Clinton's friends, which is less than earnings of the last 4 years, not to mention the $10m investment from Intel. The market cap is $225m and he manages $80m cash, which shows that the market lacks confidence that he will find uses for the cash that are more profitable than T-bills.